How To Create a Cash Flow Projection: The Ultimate Guide

A cash flow projection shows you how much money your business expects to receive and spend over a set period. Whether you’re a startup, a small business, or applying for a bank loan, it’s one of the most vital planning tools for managing your cash.

In this guide, you’ll learn how to create accurate, useful cash flow projections using real-world examples, simple steps, and Excel-friendly templates that work for any business format.

What is a cash flow projection?

A cash flow projection is a type of financial forecast that estimates how much money will come in and go out of your business over time—usually on a weekly, monthly, or yearly basis. It’s a key part of any business plan, helping you prepare for upcoming expenses, plan investments, and make sure you have enough cash to keep things running.

Think of it as your financial roadmap. It predicts income from sales, customer payments, and loans, while tracking expenses like rent, payroll, inventory, and debt payments.

This type of report is called a pro forma statement. It’s a “what if” version of your financials based on assumptions rather than actual results. It’s especially useful for startups, applying for bank loans, or managing cash in businesses like restaurants, rental properties, construction, real estate, or agriculture.

Why is a cash flow projection important?

Running out of cash is one of the leading reasons small businesses fail. According to CB Insights, approximately 30% of startups fail because they run out of money.

Creating a cash flow projection helps you:

• Avoid cash shortages before they happen
• Plan for taxes, growth, or equipment purchases
• Apply for a bank loan or attract investors
• Manage seasonal highs and lows
• Improve financial decisions with clarity and confidence

Cash flow projection vs. cash flow forecast

The terms cash flow projection and cash flow forecast are often used interchangeably, and in many small business settings, they can mean the same thing. But in more structured financial planning (especially for lenders, CFOs, or investors), there’s a subtle but important difference.

Comparison of cash flow projection and cash flow forecast methods

Let’s say you run a small restaurant:

• Cash flow projection: You build a 12-month pro forma to see if you can afford to open a second location next year. It uses sales estimates, rent costs, and payroll projections.
• Cash flow forecast: You check weekly if you’ll have enough money to pay for next week’s food delivery, rent, and payroll. You might adjust based on recent events (like a storm hurting foot traffic).

Identifying some key assumptions

Before building your projection, you need to estimate based on logic and real data.

Receivables

Your accounts receivable assumptions significantly impact cash flow timing. Consider these factors when projecting incoming cash:

• Payment Terms: If you offer net-30 terms but customers typically pay in 45 days, use the realistic 45-day timeline in your projections. Review your ledger balance regularly to track actual collection patterns.
• Seasonal Variations: Retail businesses often see faster payments during holiday seasons, while B2B companies might experience slower collections during summer months when key decision-makers are on vacation.
• Bad Debt Estimates: Based on historical data, estimate what percentage of invoices may become uncollectible. Learn more about bad debt calculation to factor this into your projections.

Payables

Your payment obligations follow patterns that directly affect cash outflow timing:

• Vendor Terms: Do you typically pay suppliers immediately, within 30 days, or quarterly? Agriculture businesses might make large seasonal purchases, while restaurants maintain steady weekly deliveries.
• Payroll Schedule: Weekly, bi-weekly, or monthly payroll schedules create predictable cash outflow patterns. Don’t forget to include payroll taxes, benefits, and any seasonal bonus payments.
• Fixed vs. Variable Costs: Rent, insurance, and loan payments occur on fixed schedules, while utilities, marketing, and inventory costs may fluctuate based on business activity.

9 steps to a simple cash flow projection

A clear cash flow projection helps you manage money in and out of your business. Whether you’re a startup or an established company, follow these simple steps to build yours:

1: Choose the type of projection model

Pick a model based on your goals and timeframe:

Comparison of Short-Term, Long-Term, and Rolling Cash Flow Projection Models

2: Gather historical data and sales information

Accurate projections start with solid historical data. Use QuickBooks or your accounting software to pull:

• Sales Data: Monthly revenue patterns, seasonal fluctuations, and growth trends. Look for patterns in your income statement to identify recurring cycles.
• Expense Patterns: Fixed costs like rent and insurance, variable costs like inventory and utilities, and periodic expenses like quarterly tax payments.
• Collection History: How quickly customers actually pay, not just your stated terms. This timing difference can significantly impact cash availability.

3: Project cash inflows

Estimate all expected cash receipts using realistic assumptions:

• Primary Revenue: Base projections on historical sales data, adjusting for known factors like new products, market expansion, or economic conditions. For new businesses, research industry benchmarks and comparable companies.
• Secondary Income: Include rental income from property, interest on business savings accounts, or revenue from side services.
• Financing Sources: Factor in approved loans, investor funding, or grants. Only include committed funding, not potential sources still under negotiation.

4: Estimate cash outflows

Include all business expenses, grouping them by category and payment frequency:

• Operating Expenses: Rent, utilities, insurance, payroll, and benefits. These typically represent the largest portion of monthly outflows.
• Cost of Goods Sold: Inventory purchases, direct materials, and production costs. These often correlate directly with sales volume projections.
• Capital Expenditures: Equipment purchases, facility improvements, and technology investments. These create large, infrequent cash outflows.
• Debt Service: Principal and interest payments on business loans, equipment financing, and credit lines.

5: Calculate opening and closing balances

Track your cash position month by month:

• Opening balance: Each period starts with the previous period’s closing balance. Your first month begins with current cash on hand.
• Closing balance: Opening balance + total inflows – total outflows = closing balance

This helps you plan for low-cash periods.

6: Account for timing and payment terms

Cash flow differs from accounting profit because of timing differences:

• Invoice to cash: If customers take 30 days to pay, January sales may not generate cash until February. Map your actual collection experience, not your preferred terms.
• Expense timing: Some bills arrive at month-end while others hit mid-month. Payroll might be bi-weekly while rent is monthly. Accurate timing prevents cash flow surprises.

Tip: Understanding your gross profit vs. net profit helps ensure you’re not overestimating available cash from top-line revenue.

7: Calculate net cash flow

Use the cash flow formula to determine your net position:

Net Cash Flow = Total Cash Inflows – Total Cash Outflows

Track it monthly to spot trends.

8: Build contingency plans

Prepare for unexpected events by creating scenario-based projections:

• Best Case: Assume sales exceed expectations by 10-15% and collections happen faster than normal. This helps identify growth opportunities and optimal cash investment timing.
• Worst Case: Model delayed payments, unexpected expenses, or sales shortfalls. Plan financing solutions before you need them.
• Buffer: Maintain a 10% cash buffer for unplanned events like equipment repairs, economic downturns, or late customer payments.

9: Implement rolling forecasts

Keep projections current and useful:

• Regular updates: Update your projection monthly with actual results, adjusting future periods based on new information.
• Variance analysis: Compare projected versus actual results to improve future forecasting accuracy.
• Trend identification: Look for patterns in variances to refine your assumptions and improve projection quality.

Cash flow projection example

Here’s a practical example for a small consulting business:

January projection:

• Opening balance: $15,000
• Inflows: client payments ($25,000), new project deposit ($5,000) = $30,000
• Outflows: salaries ($12,000), rent ($3,000), utilities ($800), marketing ($2,000), taxes ($4,000) = $21,800
• Net cash flow: $30,000 – $21,800 = $8,200
• Closing balance: $15,000 + $8,200 = $23,200

This format provides clear visibility into cash position changes and helps identify potential shortfalls before they occur.

How to calculate projected cash flow?

• List expected inflows (sales, grants, loans)
• List expected outflows (payroll, taxes)
• Organise weekly or monthly
• Subtract outflows from inflows
• Track monthly balances

Example:

Inflows: $60,000 (sales + loan)

Outflows: $45,000

Net Cash Flow: $15,000

For more examples, see our article on What Is Cash Flow Formula and How to Calculate It?

6 Common Pitfalls to Avoid When Creating Cash Flow Projections

Avoid these frequent mistakes that can render projections useless or misleading:

1. Too optimistic: Always model conservative sales
2. Ignoring timing: Income ≠ immediate cash
3. Overlooking seasonality: Holidays, weather, and school terms impact sales
4. Skipping hidden costs: Add buffer for legal fees or emergency repairs
5. Using old data: Update quarterly
6. Static projections: Rolling forecasts are far more valuable

How Automation Helps in Projecting Cash Flow?

Modern software can boost accuracy and save time:

• QuickBooks users save hundreds of hours/year
• AI forecasts patterns using historical payment data
• Real-time alerts help you spot upcoming shortfalls
• Exportable Excel templates speed up reporting

Strategies to Improve Accuracy

Enhance your cash flow projection accuracy with these proven techniques:

• Multi-scenario planning: Always prepare a best/worst case
• Weekly reviews: Not just monthly
• Customer segmentation: Identify fast vs. slow payers
• Supplier negotiation: Renegotiate payment terms when needed
• Use templates: Start with free invoice templates

Continue to Refine Your Cash Flow Projection

Effective cash flow projections evolve continuously with your business. Regular refinement ensures your projections remain relevant and accurate:

• Update Triggers: Refresh your projections when launching new products, changing pricing, expanding to new markets, or experiencing significant customer gains or losses.
• Integration with Business Planning: Use cash flow projections alongside comprehensive financial projections to create complete business plans that attract investors and lenders.
• Performance Analysis: Compare projected versus actual results monthly, identifying patterns in variances to improve future projections. Understanding why projections missed targets is as valuable as hitting them accurately.
• Market Adaptation: Economic conditions, industry trends, and competitive pressures change over time. Successful businesses adapt their projection assumptions to reflect current market realities rather than historical patterns.

Tip! Learn how to create financial projections to support your full business plan.

Final Thoughts

Cash flow projections represent the difference between reactive and proactive business management. Whether you’re managing a solo consulting practice or scaling a multi-location retail operation, understanding your future cash position enables confident decision-making and sustainable growth.

The time invested in creating accurate projections pays dividends in avoided cash shortfalls, optimized growth investments, and improved stakeholder confidence. Remember that projections are tools for guidance, not guarantees. Regular updates and conservative assumptions will serve you better than overly optimistic static forecasts.

Start small, update often, and stay realistic. That’s how smart business owners stay cash-positive.

Need simpler finances? Try Invoice Fly’s Invoice Maker — It’s free!